This Bill contains the following measures:
- Thin capitalisation (previously released in this Exposure Draft); and
- Multinational tax transparency – disclosure of subsidiaries (previously released in this Exposure Draft).
This alert discusses the Multinational tax transparency measures. Our alert on the Thin Capitalisation measures can be found here.
There was much anticipation on Australia’s Public Country-by-Country (CBC) Reporting requirements following the release of the Exposure Draft (ED) in April 2023 and the Government’s consultation process, initially proposed to come into effect from 1 July 2023. However, as a sign of the global ramifications of the Government’s ‘big stick’ approach, the proposed rules will now undergo further consultation and will not come into effect until 1 July 2024.
Although not included in the Bill, the Explanatory Memorandum details some important changes to the previously released Public CBC Reporting ED.
When do the rules come into effect?
Globally, there has been an increased focus to legislate transparency reporting frameworks for multinationals. This includes the European Union’s (EU) Directive on Public CBC Reporting. The Government previously proposed Australia’s rules will apply from 1 July 2023 which is 12 months earlier than the EU. Through the consultation process, the Government acknowledges this creates an asymmetry with global requirements. It has been agreed the start date for the new rules in Australia will be delayed until 1 July 2024.
What are some of the other changes?
The ED listed the information large multinational companies had to disclose. Most of this is consistent with existing confidential CBC reports lodged with tax authorities. However, it was proposed multinationals had to disclose for each jurisdiction the related party expenses, the effective tax rate, and the list of and book value of their intangible assets. These disclosure items are not required in existing confidential CBC reports and have not been proposed by the EU Directive.
The Government acknowledged this created confidentiality issues and required taxpayers to develop additional reporting frameworks. It has been announced these additional data disclosures will be removed.
Another contentious issue is Australia’s proposed ‘full disaggregated CBC’ approach. This is inconsistent with the EU Directive. For countries such as Australia, the EU Directive is entities outside of the EU is reported in aggregate for ‘rest of world’ activity. The EU will also exempt ‘small’ entities based on employee and/or turnover test. The Government has not committed to aligning Australia’s requirements with the EU. The Government will seek further consultation before deciding how this measure will be implemented.
What does this mean for taxpayers?
The Government’s announcement is good news for taxpayers. The effective date has been delayed 12 months to align with the EU Directive. This allows taxpayers to be better prepared given the reporting requirements will be driven by the parent entity.
The compliance burden on taxpayers will also reduce. There is expected to be greater alignment with existing CBC reporting disclosures and the EU Directive. However, Treasury’s estimate of $10,000 in compliance costs for each taxpayer appears to over-simplify the additional reporting requirements and frameworks needed to be put in place.
However, it is not all good news. Taxpayers should be concerned with Treasury’s ongoing preference for a full dis-aggregate reporting approach. This deviates from the EU Directive where reporting for ‘rest of world’ (such as Australia) is aggregated. This puts at risk multinationals reporting sensitive commercial data that would otherwise not be disclosed.
Taxpayers who expect to be impacted by these rules must carefully consider these developments urgently.
Please contact us if you wish to discuss these measures further.
Amended Thin Capitalisation rules introduced into Parliament
